Tuesday, October 23, 2012

2004 Southwestern Journal of Economics


This posting shows similarities in the wording of the following article by Douglas Agbetsiafa and the works of other, earlier published authors:

Agbetsiafa, Douglas (2004) Long-Run Relationship Between Domestic Saving and Investment in Ten African Countries: Further Evidence from Cointegration Models, Southwestern Journal of Economics, Vol. VI No. 1 pp. 1-19, March 2004.

[The Southwestern Journal of Economics is affiliated with the Southwestern Economics Association (SWEA). The editor of the journal is Abdul M. Turay.  Turay is the co-author of another publication with Douglas Agbetsiafa: "Differences in Saving and Investment Variability in Selected LAC Countries." Trends In Modem Business. Academy of Business Administration, February 1995, pp. 352-360].

Douglas Agbetsiafa is Professor of Economics and Chair of the Economics Area at Indiana University South Bend (IUSB).  He holds a PhD in Economics from the University of Notre Dame.  That PhD also contains wording that is similar to earlier published authors.

From Agbetsiafa article, pages 1-2:

The central premise of this approach is that in a world where there is high capital mobility, a country's savings are effectively part of a world pool that is able to be directed anywhere.

Compare this to:

The central premise of this approach is that in a world where there is high capital mobility, a country’s savings are effectively part of a world pool that is able to be directed anywhere.
Tony Cavolia, Ramkishen S. Rajanb & Reza Siregarc (2004) A Survey of Financial Integration in East Asia: How Far? How Much Further to Go? http://www.adelaide.edu.au/cies/papers/0401.pdf [Page 16]

From Agbetsiafa article, page 2:

Thus the deviation of saving from investment in a particular country is simply a representation of the extent of capital mobility. For the FH conclusion about high capital mobility to hold, the domestic interest rate has to be tied to the world interest rate. If capital markets are open, real interest rates are equalized across economies and saving and investment need not be correlated. If capital mobility is low, real interest differentials will not be equalized, thus making saving and investment ratios similar within national borders (see Frankel 1991 and Bayoumi 1997).

Compare this to:

… deviations of savings from investment of a particular country is simply a representation of the extent of capital mobility. For the FH conclusion about high capital mobility to hold, the domestic interest rate has to be tied to the world interest rate, i.e. r = r*. If capital markets are open, real interest rates are equalized across economies and savings and investment need not be correlated. If capital mobility is low, real interest differentials will not be equalized, thus making savings and investment ratios similar within national borders (see Frankel, 1991 and Bayoumi 1997).
Tony Cavolia, Ramkishen S. Rajanb & Reza Siregarc (2004) A Survey of Financial Integration in East Asia: How Far? How Much Further to Go? http://www.adelaide.edu.au/cies/papers/0401.pdf [Page 16]

From Agbetsiafa article, page 2:

The authors used cross-sectional data and single equation regression to estimate the relationship between saving and investment for 16 OECD economies for the period 1960-74. For the full sample, the estimated value of (3 was 0.9 and is insignificantly different from unity. This result led FH to conclude that capital mobility for the sample of OECD countries is not very high. This high correlation of saving and investment has come to be known as the FH puzzle in the international macroeconomic literature.

Compare this to:

The authors estimated this equation for 16 OECD economies for the period 1960-74. For the full sample the value of was about 0.9 and insignificantly different from one. This led FH to conclude that capital mobility for the sample of OECD economies is not very high. This high correlation of savings and investment ñ or small size of current account balances ñ has come to be known as the FH “puzzle”.
Tony Cavolia, Ramkishen S. Rajanb & Reza Siregarc (2004) A Survey of Financial Integration in East Asia: How Far? How Much Further to Go? http://www.adelaide.edu.au/cies/papers/0401.pdf [Pages 16-17]

From Agbetsiafa article, page 2-3:

Another important cross-sectional study by Bayoumi (1997) presents regression results for 22 OECD economies using data from 1960 to 1993, with the full sample split into a number of sub-samples. Regression results based on this procedure indicate a reduction in the correlation coefficient over a time period that is widely acknowledged to coincide with gradual relaxation of capital controls by some OECD countries.

Compare this to:

Another important cross- sectional study by Bayoumi (1997) presents regressions for 22 OECD economies using data from 1960 to 1993 and splits the sample up into a number of sub-samples. There is clearly a reduction in the correlation over a time period that is widely acknowledged to be one where there was a gradual relaxation of capital controls by certain OECD economies.
Tony Cavolia, Ramkishen S. Rajanb & Reza Siregarc (2004) A Survey of Financial Integration in East Asia: How Far? How Much Further to Go? http://www.adelaide.edu.au/cies/papers/0401.pdf [Page 17]

From Agbetsiafa article, page 3:

Murphy (1984), Obstfeld (1986), Finn (1990), Stockman and Tesar (1991), and Barkoulas, Filizetkin, and Murphy (1996) have challenged the existence of high correlation between domestic saving and investment, and contend that capital is internationally mobile. Under this hypothesis, foreign capital will flow into regions or countries with higher real interest rates. Obviously, this has rather important economic development policy implications, especially for small open economies where increases in domestic saving will not necessarily translate into higher domestic investment under perfect capital mobility hypothesis.

Compare this to:

However a number of researchers including Murphy (1984), Obstfeld (1986), Finn (1990), Stockman and Tesar (1991), and Barkoulas, Filizetkin, and Murphy (1996) have challenged the existence of high correlation between saving and investment. These authors surmise that capital is internationally mobile. Under this hypothesis, foreign
capital flows to countries with higher real
interest rates. Perfect capital mobility, has important policy implications especially for small open economies.
Emmanuel Anoruo (2001) The Savings-Investment Connection: Evidence from the ASEAN Countries.  The American Economist, 45(1): 46-53, at page 46.

From Agbetsiafa article, page 3-4:

First, most of the studies have used single equation ordinary least squares regression methodology to examine the relationship between saving and investment, and are therefore, likely to suffer from simultaneous equation bias. Secondly, those studies that employed ordinary least squares regression analysis did so without examining the time series properties of saving and investment series. Indeed, Nelson and Plosser (1982) have shown that most macroeconomic time series data are nonstationary in their levels, but stationary when differenced. Thirdly, a number of the studies have used cross-section data, thereby making it difficult to apply their findings to individual countries. Finally, many of the studies in the literature concentrated on the relationship between saving and investment in the developed regions of the world, with little attention to developing countries, especially those within the African sub-region.

Compare this to:

First, most of the studies used single equation ordinary least squares (OLS) regression method to examine the relationship between saving and investment. These studies are likely to suffer from simultaneous equation bias leading to fallacious conclusions. Second, studies that employed OLS regression analysis did so without first examining the time series properties (unit roots) of saving and investment. Nelson and Plosser (1982) have shown that most macroeconomic time series data are nonstationary in their levels but stationary when differenced. Third, a number of studies used cross-section data, which makes it difficult, if not impossible, to apply their findings to any particular country. Fourth and finally, most of the studies in the literature concentrated on the relationship between saving and investment in the developed countries [mainly for the members of the Organization for Economic Cooperation and Development (OECD)] with little or no attention devoted to countries with nascent economies.
Emmanuel Anoruo (2001) The Savings-Investment Connection: Evidence from the ASEAN Countries.  The American Economist, 45(1): 46-53, at page 47.

From Agbetsiafa article, pages 4-5:

It employs unit root tests to determine the order of integration of the saving and investment time series since variables with the same order of integration must be included in the cointegrating equations. In addition, cointegration tests utilizing the maximum-likelihood procedure suggested by Johansen (1990,1995), and Johansen and Juselius (1991) were used to examine the long-run relationship between saving and investment. Finally, causality tests based on the error-correction model were conducted to determine the direction of causality between the saving and investment time series data.

 Compare this to:

In particular, we conduct unit root tests using both the Dickey-Fuller (OF) and augmented Dickey-Fuller (ADF) to determine the order of integration, since we must only include variables with the same order of integration in the cointegrating equation. In addition, we undertake the cointegration tests utilizing the maximum likelihood procedure suggested by Johansen and Juselius (1990)  and Johansen (1991)  to ascertain the long-run relationship between saving and investment.1  Finally, the Granger-causality tests based on the vector error correction models (VECM) are conducted to determine the direction of causality between saving and investment series.
Emmanuel Anoruo (2001) The Savings-Investment Connection: Evidence from the ASEAN Countries.  The American Economist, 45(1): 46-53, at page 47.

From Agbetsiafa, page 5:
It is important to note that researchers such as Barkoulas, Filizetkin, and Murphy (1996), Bodman (1995), Gulley (1992), Jansen and Schulze (1996), Taylor (1996), Miller (1988), and Keun-Yeob et. al (1998) have examined the relationship between saving and investment using cointegration techniques. However, these studies focused primarily on OECD countries.

Compare this to:

Few researchers including Barkoulas, Filizetkin, and Murphy (1996), Jansen and Schulze (1996), Taylor (1996), and Miller ( 1988) have examined the relationship between saving and investment using cointegration techniques. Again, these authors focused mainly on the OECD countries.
Emmanuel Anoruo (2001) The Savings-Investment Connection: Evidence from the ASEAN Countries.  The American Economist, 45(1): 46-53, at page 47.

From Agbetsiafa article, page 7:

The region's average real per capita income in 2000 was roughly unchanged from its level in 1970. This average performance masks significant differences across countries however, and is strongly affected by developments in the two largest economies, South Africa and Nigeria, which in 1999 accounted for nearly 30 percent of the region's total output. The nine fastest growing economies achieved average annual growth of 3.1 percent in real per capita incomes over the last three decades. In the nine slowest growing economies, real per capita income contracted by 2 percent per annum on average, owing in some cases to armed conflicts, and political instability.

Compare this to:

The region’s average real per capita income in 1998 was roughly unchanged from its level in 1970 (Figure 6.1). This aver- age performance masks significant differences across countries, however, and is strongly affected by developments in the two largest economies, South Africa and Nigeria, which in 1998 together accounted for al- most 30 percent of the region’s total output (in terms of purchasing power parities). Out of the 47 SSA countries,2 the nine fastest growing economies achieved average annual growth of 3.1 percent in real per capital incomes over the past 30 years. In the nine slowest growing economies, real per capita income contracted by 2 percent a year on average, owing in some cases to armed conflicts and political instability.
[Page136; end of first column/start of second]

From Agbetsiafa article, page 7 (Footnote 2):

The conditional convergence hypothesis implies that countries grow faster the further their per capita real income is below its potential path, which in turn. depends on a number of factors, including technology, cultural, demographic, social, institutional, and political characteristics. See Robert Sarro and Xavier Sala-i-Martin, Economic Growth (New York: McGraw Hill, 1995).

Compare this to:

The conditional convergence hypothesis implies that countries grow faster the further their per capita real income is below its potential path, which in turn depends on a number of factors, including technology, cultural, demographic, social, institutional, and political characteristics. See Robert Barro and Xavier Sala-i-Martin, Economic Growth (New York: McGraw Hill, 1995) and October 1994 World Economic Outlook (Box 11).
[Page 137, footnote 7]


From Agbetsiafa article, page 8:

One of the hypotheses tested has been that of conditional convergence of per capita incomes, based on the observation that poorer countries tend to grow faster, other things being equal. The standard cross-section growth regressions have failed to provide adequate explanation for Africa's poor growth performance. Recent research has therefore emphasized the importance of various institutional, social and political factors in accounting for such performance. Clearly, most of these factors are also strongly influenced by output growth and the level of economic development, making it difficult to establish the causal relationship either way. It has also been suggested that economic growth in Africa has been adversely affected by several factors beyond their immediate control, such as rapid population growth, unfavorable climatic conditions, location, terms-of-trade changes, and virulence of diseases. 3

Compare this to:

One of the hypotheses tested has been that of conditional convergence of per capita incomes, based on the observation that poorer countries tend to grow faster, other things being equal.7 The standard cross-section growth regressions (based on initial per capita income and such explanatory variables as investment rates, the level of education, and macroeconomic policy characteristics) were unable to explain the poor SSA growth performance. Recent analysis has therefore emphasized the importance of various institutional, social, and political factors, which constitute a focus of this chapter. Obviously, most of these factors are also strongly influenced by output growth and the level of economic development, making it difficult to establish the causal relationship either way. It has also been suggested that economic growth in SSA countries has been adversely affected by several factors beyond their immediate control, such as rapid population growth, unfavorable climatic conditions, location (landlocked positions in some cases and distance from large markets), terms-of-trade changes, and virulence of diseases.
[Page137, column one]

From Agbetsiafa article, page 8:

Furthermore, the growth literature also suggests that sustainable growth of per capita income usually results from investment in physical and human capital, as well as growth in total factor productivity. However, growth accounting exercises for African countries over 1973-1994 show a modest contribution to per capita income growth from accumulation of physical and human capital, and a large negative contribution from total factor productivity, which indicates major impediments to growth.4

Compare this to:

Sustainable growth of per capita income usually results from investment in physical and human capital and growth in total factor productivity (TFP). Growth accounting exercises for SSA countries over 1973–94 show a modest contribution to per capita income growth from accumulation of physical and human capital, and a large negative contribution from TFP growth (of the order of a negative 1.3 percent per annum), which indicates major impediments to growth.
[Page137, column one]

From Agbetsiafa article, page 8:

While high growth countries have relatively high investment ratios that have been rising, with total and private investment reaching close to 32 and 35 percent respectively, these figures average 10 and 5 percent, While high growth countries have relatively high investment ratios that have been rising, with total and private investment reaching close to 32 and 35 percent respectively, these figures average 10 and 5 percent, respectively for the low-growth countries. Furthermore, investment in several countries appeared to have been relatively unproductive, as is indicated by the negative estimates of total factor productivity.

Compare this to:

High-growth countries have relatively high investment ratios that have been rising, with total and private investment reaching 32 and 25 percent of GDP, respectively, in the second half of the 1990s, while in the same period total and private investment ratios in the low-growth countries averaged 10 and 5 percent, respectively. Investment in SSA also appears to have been relatively unproductive, as indicated by the negative estimates of TFP growth.
[Page141; end of column one/start of column 2]

From Agbetsiafa article, page 9:

See Collins and Bosworth (1996). The evidence also suggests that Africa's poor economic growth performance may be attributed partly to factors that either discourage investment or make it unproductive.

Compare this to:

This evidence suggests that the poor growth perfor- mance of SSA countries may be attributed partly to factors that either discourage investment or make it less productive.
[Page 141]

From Agbetsiafa article, page 20:

The liberalization of financial systems has been one of the most successful areas of reform, and only a few countries still impose quantitative credit controls or maintain negative real lending rates. However, further progress is needed on the part of these countries to raise their saving and investment rates as well as improving the overall efficiency of resource allocation.

Compare this to:

Liberalization of the domestic financial market has been one of the most successful areas of reform, and only a few countries still impose quantitative credit controls or maintain negative real lending rates.
[Pages 146-147]

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